Hostname: page-component-77c89778f8-n9wrp Total loading time: 0 Render date: 2024-07-17T01:53:45.241Z Has data issue: false hasContentIssue false
  • English
  • Français

Capital Growth and the Mean-Variance Approach to Portfolio Selection

Published online by Cambridge University Press:  19 October 2009

Nils H. Hakansson
Get access Rights & Permissions [Opens in a new window]

Extract

Three main approaches to the problem of portfolio selection may be discerned in the literature. The first of these is the mean-variance approach, pioneered by Markowitz [21], [22], and Tobin [30]. The second approach is that of chance-constrained programming, apparently initiated by Naslund and Whinston [26]. The third approach, Latané [19] and Breiman [6], [7], has its origin in capital growth considerations. The purpose of this paper is to contrast the mean-variance model, by far the most well-known and most developed model of portfolio selection, with the capital growth model, undoubtedly the least known. In so doing, we shall find the mean-variance model to be severely compromised by the capital growth model in several significant respects.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 6 , Issue 1 , January 1971 , pp. 517 - 557
Copyright
Copyright © School of Business Administration, University of Washington 1971

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Arrow, Kenneth, Aspects of the Theory of Risk-Bearing (Helsinki: Yrjö Jahnssonin Sääatiö, 1965).Google Scholar
[2]Arrow, Kenneth, “Comment on Duesenberry's ‘The Portfolio Approach to the Demand for Money and Other Assets,’” Review of Economics and Statistics, Supplement (February 1963).CrossRefGoogle Scholar
[3[Baumol, William, “An Expected Gain-Confidence Limit Criterion for Portfolio Selection,” Management Science (October 1963).CrossRefGoogle Scholar
[4]Bernoulli, Daniel, “Exposition of a New Theory on the Measurement of Risk,” translated by Louise Sommer, Econometrica, (January 1954).CrossRefGoogle Scholar
[5]Borch, Karl, “A Note on Utility and Attitudes to Risk,” Management Science (July 1963).Google Scholar
[6]Breiman, Leo, “Investment Policies for Expanding Business Optimal in a Long-Run Sense,” Naval Research Logistics Quarterly (December 1960).CrossRefGoogle Scholar
[7]Breiman, Leo, “Optimal Gambling Systems for Favorable Games,” Fourth Berkeley Symposium on Mathematical Statistics and Probability (Berkeley: University of California Press, 1961).Google Scholar
[8]Brown, George, unpublished notes, 1964.Google Scholar
[9]Cohen, K., and Pogue, J., “An Empirical Evaluation of Alternative Portfolio Selection Models,” Journal of Business (April 1967).CrossRefGoogle Scholar
[10]Cootner, Paul, ed. The Random Character of Stock Market Prices (Cambridge, Mass.: MIT Press, 1964).Google Scholar
[11]Fama, Eugene, “The Behavior of Stock Market Prices,” Journal of Business (January 1965).CrossRefGoogle Scholar
[12]Farrar, Donald, The Investment Decision under Uncertainty (Englewood Cliffs, New Jersey: Prentice–Hall, Inc., 1962).Google Scholar
[13]Freimer, Marshall, and Gordon, Myron, “Investment Behavior with Utility A Concave Function of Wealth,” eds., Borch, K. and Mossin, J., Risk and Uncertainty (New York: St. Martin's Press, 1968).Google Scholar
[14]Friend, I., and Vickers, D., “Portfolio Selection and Investment Performance,” Journal of Finance (September 1965).CrossRefGoogle Scholar
[15]Hakansson, Nils, “Comment on Borch, Feldstein, and Tobin,” Working Paper No. 278 (Berkeley: University of California, Center for Research in Management Science, September 1969).Google Scholar
[16]Hakansson, Nils, “Optimal Investment and Consumption Strategies under Risk for a class of Utility Functions,” Econometrica (September 1970).CrossRefGoogle Scholar
[17]Hakansson, Nils, “Optimal Investment and Consumption Strategies under Risk, An Uncertain Lifetime, and Insurance,” International Economic Review (October 1969).CrossRefGoogle Scholar
[18]Hakansson, Nils, “Risk Disposition and the Separation Property in Portfolio Selection,” Journal of Financial and Quantitative Analysis (December 1969).CrossRefGoogle Scholar
[19]Latané, H., “Criteria for Choice among Risky Ventures,” Journal of Political Economy (April 1959).CrossRefGoogle Scholar
[20]Lintner, John, “The Valuation of Risk. Assets and the Selection of Risk Investments in Stock Portfolios and Capital Budgets,” Review of Economics and Statistics (February 1965).CrossRefGoogle Scholar
[21]Markowitz, Harry, “Portfolio Selection,” Journal of Finance (March 1952).CrossRefGoogle Scholar
[22]Markowitz, Harry, Portfolio Selection (New York: John Wiley and Sons, 1959).Google Scholar
[23]Markowitz, Harry, “The Optimization of a Quadratic Function Subject to Linear Constraints,” Naval Research Logistics Quarterly (March–June 1956).CrossRefGoogle Scholar
[24]Massé, Pierre, Optimal Investment Decisions (Englewood Cliffs, New Jersey: Prentice-Hall, 1962).Google Scholar
[25]Mossin, Jan, “Optimal Multiperiod Portfolio Policies,” Journal of Business (April 1968).CrossRefGoogle Scholar
[26]Naslund, B., and Whinston, A., “A Model of Multiperiod Investment under Uncertainty,” Management Science (January 1962).CrossRefGoogle Scholar
[27]Pratt, John, “Risk Aversion in the Small and in the Large,” Econometrica (January–April 1964).CrossRefGoogle Scholar
[28]Pye, Gordon, “Portfolio Selection and Security Prices,” Review of Economics and Statistics (February 1967).CrossRefGoogle Scholar
[29]Savage, Leonard, The Foundations of Statistics (New York: John Wiley and Sons, 1954).Google Scholar
[30]Tobin, James, “Liquidity Preference as Behavior Toward Risk,” Review of Economic Studies (February 1958).CrossRefGoogle Scholar
[31]Tobin, James, “Comment on Borch and Feldstein,” Review of Economic Studies (January 1969).CrossRefGoogle Scholar
[32]Tobin, James, “The Theory of Portfolio Selection,” The Theory of Interest Rates, eds., Hahn, F. H. and Breckling, F. P. R. (New York: The MacMillan Company, 1965).Google Scholar
[33]von Neumann, John, and Morgenstern, Oskar, Theory of Games and Economic Behavior, 2nd ed. (Princeton, New Jersey: Princeton University Press, 1947).Google Scholar